1978 (9) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer (ITO).
2. Existence and assessment of a sub-partnership.
3. Validity of proceedings under Section 34(1)(a) of the Indian Income-tax Act, 1922.
4. Imposition of penalty under Sections 28(1)(a) and 28(1)(b) of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer (ITO):
The first issue was whether the objection to the jurisdiction of the ITO could be raised in appeal before the Appellate Assistant Commissioner (AAC). The assessee did not initially raise an objection that the ITO, "C" Ward, Dehra Dun, had no jurisdiction. The AAC and the Tribunal both upheld that this objection could not be raised for the first time in appeal. The Tribunal noted that no arguments were addressed by the learned counsel for the assessee on the ground of jurisdiction. It also highlighted that Section 64 of the Act provides that the place of assessment is determined by the Commissioner, and objections must be raised within the time allowed by the notice under Section 34. The court agreed with the Tribunal, deciding this issue against the assessee.

2. Existence and Assessment of a Sub-partnership:
The second issue was whether the finding that there was a partnership consisting of five persons was right in law. The Tribunal relied on the statement of Murarilal and the partnership deed of the sub-partnership, concluding that Murarilal and four others had entered into a partnership to share the profits of the Panagarh business. Despite the sub-partnership deed being signed by only two persons, the Tribunal found sufficient documentary evidence and conduct of the partners to support the existence of the sub-partnership. The court upheld this finding, stating that it was not vitiated by any error of law and was right in law, thus deciding this issue against the assessee.

3. Validity of Proceedings under Section 34(1)(a) of the Indian Income-tax Act, 1922:
The third issue involved the jurisdiction of the ITO to initiate proceedings under Section 34(1)(a). The assessee argued that the ITO had initially assessed the entire ten annas income in the hands of Murarilal as an individual and could not later assess it in the hands of the unregistered firm. The court noted that Murarilal had never claimed before the ITO that the persons from whom he had taken loans were partners in the business. The ITO had no knowledge of the sub-partnership for the year 1949-50 due to complete suppression of this fact by Murarilal. The court concluded that the ITO's action under Section 34(1)(a) was valid as it was not based on a change of opinion but on new information. This issue was also decided against the assessee.

4. Imposition of Penalty under Sections 28(1)(a) and 28(1)(b) of the Indian Income-tax Act, 1922:
The fourth issue was whether the penalty could be validly levied under Sections 28(1)(a) and 28(1)(b). The ITO initiated penalty proceedings after finding the assessee guilty of concealment. Despite the firm not filing any return or producing its account books, the ITO had material evidence, including Murarilal's confession and the partnership deed, to believe that a sub-partnership existed. The Tribunal upheld the penalty but reduced the amount to Rs. 5,000. The court found the imposition of penalty to be justified, thus deciding this issue against the assessee.

Conclusion:
All the questions referred to the court were answered in favor of the department and against the assessee. The department was entitled to costs assessed at Rs. 200 in each case.